Sector connectors, specialists and scrappers: How cities use civic capital to compete in high-technology markets

In recent years, Tijs, David and I have all been struck by the emergence of vibrant entrepreneurial ecosystems in Canada, a high-technology laggard. Individually, we explored Waterloo’s transformation from a feeder of engineering talent into a startup incubator, Toronto’s evolution from a sales and marketing outpost for foreign subsidiaries into an entrepreneurial hub, and the reconstruction of Ottawa’s once formidable, but troubled tech sector. We joined forces to shed light on how latecomers such as Canada compete in high-technology markets.

Initial work highlighted the similarities among these regions, as all three benefited from civic capital or local social networks rooted in a common vision for the community. In Waterloo, the informal Atlas Group and, later, Communitech, encouraged and supported new, high-technology ventures beginning in the 1990s. A wave of association-building followed in 21^st century Toronto, as organisations such as TechTO connected the entrepreneurial community. Ottawa is the exception that proves the rule. The decline of its once-strong industry association hindered its ability to adapt to Nortel’s collapse. Its eventual resilience built on a new wave of association building, with organisations such as Fresh Founders and the Kanata North Business Association.

The notion that civic capital supports high-technology competition, or economic development more generally, is not a new one. But as we dug deeper into the cases, we were struck by how connectivity varied across the three regions. In Toronto, a “super connector,” weak ties connected entrepreneurs to financial capital, talent, research, advanced users, and complementary service providers, generating archetypical big city “cross-sectoral buzz.” By contrast, Ottawa, a small city, mobilised strong ties to make strategic investments in specialised public goods such as research, physical infrastructure, and training programs. The resulting “specialist” excelled at scaling firms, but only within specific verticals such as telecommunications equipment.

This distinction between large, diversified cities and smaller specialists comes as no surprise, but Waterloo confounds expectations. Despite being even smaller than Ottawa, we detected no pattern of specialisation, with small and medium-sized enterprises distributed across a wide array of sectors. What is the story here? There is no cross-sectoral buzz (the city is too small to support it anyway), and there is no Ottawa-style task-specific cooperation.

We argue that Waterloo uses civic capital in a unique way, using weak ties to construct extensive peer-to-peer mentoring networks. These informal social ties teach entrepreneurs how to navigate the constraints associated with a small, capital-scarce region, leveraging the region’s engineering talent to target “hard, boring problems,” or technical, business-to-business niches which larger competitors tend to overlook. The result is a “scrapper,” which has historically struggled to scale enterprises, but places smaller firms in a wide variety of different industries.

As a comparative political economist, this project has been particularly rewarding. Peer Hull Kristensen and Peter Katzenstein drew me into the subfield two decades ago with the idea that, while bigger countries can have it all, smaller countries have to niche. While this is widely equated with sectoral specialisation, this paper suggests that small communities can niche in two different ways. My hope is that our article sheds light on small communities which defy convention by diversifying and illuminates an alternative pathway for regions grappling with the decline of traditional, Marshallian clusters. 

Read the accompanying article on Urban Studies OnlineFirst here.